Real Estate Information Archive

Blog

Displaying blog entries 1-3 of 3

What's the Deal on Reverse Mortgages?

by Home Action News

What's the Deal on Reverse Mortgages?

 

You've seen the television commercials. A well-known actor sings the praises of reverse mortgages and promises fast debt relief if you agree to one. But what is a reverse mortgage? Do you qualify for one? When should homeowners consider a reverse mortgage?

What Is a Reverse Mortgage?

A reverse mortgage is a loan available to homeowners who are age 62 or older. A lender agrees to pay you an amount each month based upon a portion of the equity in your home. Each month, you receive a payment based on this amount. As long as the borrower remains in the home, the loan doesn't have to be repaid. However, when the borrower moves from the home, the loan must be repaid. Typically, the home is sold and the proceeds repay the loan.

Who Might Benefit From a Reverse Mortgage?

Reverse mortgages are available to people age 62 or older for a reason: many of them face high medical bills. Some people facing terminal or chronic illnesses have only the equity in their homes as their primary asset. For these people, a reverse mortgage may provide the cash needed to pay outstanding medical bills — while letting them remain in their homes.

Reverse mortgage payments, according to the Federal Trade Commission, do not affect Social Security or Medicare coverage. You can still receive both even if you are tapping into a loan based on your home's equity.

What Are the Drawbacks of Reverse Mortgages?

Banks need to make money off of the transaction, so they charge fees and interest for reverse mortgages. These amounts are added to the loan amount; consequently, when the final repayment is due, it may be considerable. Additionally, the interest rate is variable instead of fixed. Over time, rising interest rates may add greatly to the cost of a reverse mortgage.

Because you'll still own the title to your home, you're responsible for its upkeep and maintenance. Bills for repairs must be paid and the home must be kept in good condition to satisfy the loan.

How Does a Reverse Mortgage Impact Estate Planning?

When the borrower dies, some reverse mortgages allow the surviving spouse to remain in the property without penalty. Others do not. It's important to check the fine print to make sure your spouse isn't going to be left homeless after you pass away.

If you're single, divorced or widowed, your estate must repay the entire cost of the loan, including the accumulated interest. Usually the home must be sold to cover these costs. If you are hoping to leave your home to someone, a reverse mortgage may make that impossible.

There are several types of reverse mortgages, each with its own rules and requirements. Be sure to read everything in the documents presented to you by the lender and discuss the situation with your spouse and a financial professional. Reverse mortgages offer financial relief to some, nightmares to others. Consider your options and choose wisely.

Adjustable Rate Mortgages: The Good, the Bad and the Ugly

by Frank Taglienti

Adjustable Rate Mortgages: The Good, the Bad and the Ugly

 

Adjustable rate mortgages are loans with variable interest rates that change according to the market rates, as opposed to fixed rate mortgages, which guarantee a set rate for the entire period of the loan. ARMs may seem like a great idea some years, but in other years, you may wonder what you were thinking when you agreed to the loan.

Many financial experts advise home buyers to seek fixed rate mortgages. The set interest amount makes it easier to calculate monthly payments with no surprises. An adjustable rate mortgage can leave you with unpleasant surprises if the interest rates suddenly soar.

There are some pluses as well as minuses to adjustable rate mortgages. As with any financial decision, learn all you can about the topic and weigh the pros and cons carefully before choosing a loan type.

On the Plus Side...

  • ARMs may be good for buyers who plan to sell in a few years. If you know your job requires you to move every five years, an ARM may be worth the risk of interest rates rising, depending on the current rate.
  • Paying off your loan in a short time period may make an ARM better for some homeowners. For those who know they can repay the entire mortgage amount quickly but just need a short-term loan, ARMs may actually save them money.
  • Some ARMs offer a combination of adjustable and fixed rates. These may offer the best of both worlds, depending on market rates. For example, a mortgage may be fixed for five years, and then adjust annually.

On the Minus Side ...

  • Interest rates may be low now, but that only means they'll rise later. When interest rates rise, your interest rate rises too. Your monthly payments will increase. This may be a hardship for some people.
  • Adjustable rate mortgages may be saddled with a prepayment penalty. This means that if you suddenly come into a windfall and wish to pay your entire mortgage loan, you may actually be penalized for paying it off early.
  • ARMs can be difficult to understand. There are many variables, and you have to carefully read all the fine print to understand the nuances of a particular ARM. Fixed rate mortgages are a lot easier to understand: borrow this, pay that; it never changes.

Adjustable rate mortgages come in and out of fashion, but the truth is that you shouldn't take out such a loan unless you understand the worst-case scenario and how it may impact your financial health. While they are not for everyone, ARMs do offer some advantages, and those who can take advantage of these opportunities may find them useful. Talk to your lender about all the ramifications of an adjustable rate mortgage compared with a fixed rate mortgage.

Home Office Deduction: Two Conditions and Two Methods

by Frank Taglienti

Home Office Deduction: Two Conditions and Two Methods

 

First, with very few exceptions, the part of your home you use for your business must exclusively and regularly be used for the business, not personal activities. As an example, if you worked 40 hours a week in the home office but allowed your children to play video games on your home office computer, then you would not qualify for the deduction. Typically, the home office would be one room, a group of rooms or a part of a room as long as the partition is clear.

If you provide child care as a licensed day care provider, however, there is an exception. You may be entitled to at least a partial home office deduction even if you care for the children in rooms you also use for personal use after the children go home.

Second, your home office must be your principal place of business or where you regularly meet with customers. So if your company provides you with an office, but your supervisor allows you to work at home occasionally, you probably won't be eligible for the deduction.

How the Calculations Work

Until fairly recently, the IRS had only one way to calculate the home office deduction. Basically, you determined the percentage of your home you used for business and divided expenses, such as mortgage and utilities, by the same amount. You can see how complicated this can get.

So starting in 2013, the IRS introduced a new simplified method that can be used instead of the standard method if you want to save yourself some trouble. According to the IRS, this method allows a "qualified taxpayer to multiply a prescribed rate by the allowable square footage of the office in lieu of determining actual expenses."

Displaying blog entries 1-3 of 3

Share This Page

Contact Information

Photo of Frank Taglienti Real Estate
Frank Taglienti
Berkshire Hathaway PenFed REALTORS®
565 Benfield Road, Suite 100
Severna Park MD 21146
410-440-0824

©2018 BHH Affiliates, LLC. An independently owned and operated franchisee of BHH Affiliates, LLC. Berkshire Hathaway HomeServices and the Berkshire Hathaway HomeServices symbol are registered service marks of HomeServices of America, Inc.® Equal Housing Opportunity.